How Can Appchains Transform Businesses Today?

In the world of blockchain technology, a new and promising concept has emerged, capturing the attention of businesses and innovators alike: appchains. These specialized blockchains are designed with one crucial mission in mind – to serve a single, specific application or functionality. In a blockchain landscape dominated by general-purpose chains like Ethereum and Solana, the emergence of appchains represents a significant shift in strategy.

The blockchain industry is witnessing a surge in interest and enthusiasm for appchains, driven by the belief that these tailored solutions hold the key to unlocking unparalleled efficiency and optimization. As businesses increasingly explore the potential of appchains, they recognize the transformative impact this technology can have on their operations.

This article explores appchains, their characteristics, benefits, and real-world applications. 

Understanding Appchains

Appchains, short for application-specific blockchains, represent a novel approach within the blockchain ecosystem. They are characterized by their unique design, catering primarily to a single application or functionality, such as gaming or decentralized finance (DeFi). The fundamental distinction that sets appchains apart from general-purpose blockchains is their specialized nature, tailored to maximize the efficiency and performance of a specific use case.

In contrast, general-purpose blockchains like Ethereum and Solana act as bustling metropolitan cities in the blockchain landscape. They offer a diverse infrastructure supporting many applications, attracting many businesses and users. While these general-purpose chains thrive on diversity, they can become crowded, expensive, and, at times, chaotic due to the sheer number of participants vying for resources.

Appchains, on the other hand, resemble quiet rural towns. Their singular focus on a specific application allows them to fine-tune their technical architecture, security parameters, and throughput to align with the application’s needs perfectly. This isolation from unrelated applications eliminates resource competition, ensuring the appchain can fully utilize its capabilities. Users can access these appchains without permission, while developers may have more restrictions than general-purpose chains.

This analogy extends to safety and security as well. General-purpose chains benefit from their crowded and robust ecosystem, with businesses collectively invested in maintaining a secure environment. In contrast, appchains’ security relies heavily on the success and popularity of their single application. A thriving app attracts more users and strengthens the appchain’s security, while a struggling app could lead to reduced security and vulnerability.

Between these two models lie sector-specific chains, supporting certain but not all types of businesses, such as DeFi or gaming. These chains operate like suburban cities—more popular and secure than rural towns but less bustling than metropolitan cities.

Benefits of Appchains for Businesses

Appchains offer several distinct advantages for businesses operating in the blockchain space. These benefits have made them an increasingly attractive choice for various applications and industries:

Application Optimization for Improved Performance

Appchains are tailored to specific applications, enabling them to leverage the full resources of the chain, such as throughput and state, without competition from unrelated applications. This optimization results in improved performance, ensuring the application delivers a seamless and efficient user experience. For instance, interactive games require high throughput to support user interactions and can thrive on appchains.

Ecosystem Requirements in Blockchain Ecosystems

In blockchain ecosystems like Cosmos and Polkadot, building applications as appchains may be a requirement. These ecosystems aim to create interconnected chains, and their main chains typically do not implement execution engines for smart contracts. Appchains become the natural choice for application builders within these ecosystems. Examples include Osmosis and Mars Hub in the Cosmos ecosystem and PolkaDex and Phala in the Polkadot ecosystem.

Meeting Specific Application Requirements

Some applications demand high throughput and low transaction fees for a competitive user experience. Appchains are the ideal solution in such cases. Gaming applications, for example, often require rapid transaction processing with minimal fees, making appchains the preferred choice. Notable examples include the Ronin sidechain for Axie Infinity and StarkEx-based solutions like Sorare.

Adding Specialized Technological Features

Appchains allow applications to implement specific technologies that may not be readily available on the main chain. For instance, privacy-focused applications require zero-knowledge proofs like zk-Snarks or zk-Starks. Generating these proofs can be computationally intensive and expensive on-chain. Appchains provide a dedicated environment for such technologies. Aztec, a privacy-focused application on Ethereum, has implemented its L2 solution to incorporate zero-knowledge proofs.

Improving Application Economics

When applications are built as smart contracts on a main chain, users typically pay both native application fees and gas fees to validators on the main chain. While essential for security, gas fees can degrade the user experience and extract economic value from the application. Appchains offer the advantage of controlling gas fees and their distribution, allowing rewards to flow back to the application’s participants. For example, the Bored Ape Yacht Club (BAYC) ecosystem has explored moving to a separate chain to retain economic value within its community, reducing reliance on the Ethereum network for fees.

Considerations Before Adopting Appchains

Before adopting appchains, businesses must carefully consider various complexities and potential risks associated with their implementation. These considerations include:

Complexity Compared to Developing Smart Contracts

Building appchains is significantly more complex than developing smart contracts. It involves creating a dedicated blockchain infrastructure that goes beyond the application’s core functionality. That added complexity can strain a development team’s resources and time, potentially diverting their focus from the application’s core logic. For startups, especially in their early stages, the intricacies of appchain development can be a hurdle to quickly achieving product-market fit.

Security Considerations

Appchain security is closely tied to the adoption of the application and the price of its native token. Unlike general-purpose blockchains, where security is shared among multiple applications, appchain security depends largely on the success and popularity of the specific application. Several security-related factors must be taken into account:

Validator Attraction: Appchains often require validators to stake the native application token and maintain high-uptime infrastructure. Attracting professional validators can be challenging, and relying on hobbyist validators may compromise network security.

Validator Rewards: The rewards for validators are usually in the native token, adding pressure on application developers to implement high token inflation or gamified token economics that may not be sustainable.

Network Vulnerability: In cases where application adoption is weak, and the token price is low, the network’s security can become vulnerable to attacks, as malicious parties can acquire enough stake to attack the network at a relatively low cost.

Lack of Atomic Composability

One of the primary advantages of building applications such as smart contracts is atomic composability. Smart contracts can interact seamlessly with each other within the same transaction, enabling complex behaviors and business opportunities. Appchains, on the other hand, lack this atomic composability. Interactions between applications on appchains typically require cross-chain bridging or messaging, which can take several blocks to complete and cannot be executed atomically. This limitation can impact the efficiency and complexity of decentralized applications and reduce their ability to create novel financial products or features.

Risks Related to Bridging Assets for DeFi Applications

DeFi applications often use bridging assets such as BTC, ETH, and stablecoins to function effectively. Bridged assets introduce complexity and risks, including:

User Experience: Bridged assets can lead to a degraded user experience due to delays and potential issues related to the bridges used.

Security Risks: Bridges are common targets for exploitation, and if compromised, they can result in bad debt for DeFi applications.

Bridge Selection: Appchains may struggle to attract reputable and well-funded bridges, leading to potential reliance on centralized bridges or the development of custom bridges.

Appchain Startup Opportunities

Within the appchain ecosystem, several promising startup opportunities emerge, each catering to the unique demands and complexities of appchain technology. These opportunities include:

High-Performance DeFi Protocols

Startups can develop DeFi protocols to compete with traditional Web 2.0 performance levels. Appchains provide an ideal platform for such protocols, offering low fees and high throughput. Central Limit Order Book (CLOB) exchanges are prime candidates for this category. Building customizable technology stacks tailored to DeFi protocol needs will be essential in this endeavor.

Appchain Gaming Engines

Appchains can revolutionize the gaming industry by providing high throughput for interactive games. Startups can focus on creating efficient gaming engines capable of supporting 100,000+ transactions per second (TPS) for on-chain games. These engines would ensure smooth and responsive user experiences in gaming applications.

Developer Tooling for Appchains

Building on appchains requires comprehensive developer tools for customization, deployment, and maintenance. Startups can develop developer platforms that simplify the process of launching appchains. 

AI-Enabled Appchains

Artificial intelligence (AI) is a transformative technology with intensive computational requirements. Appchains can enable the public’s access to AI applications by running trained AI models. Startups can focus on building applications that harness the power of AI, such as Dall-E or GPT-4, and make them accessible to the public via appchains.

Composability Solutions

The lack of atomic composability in appchains presents an opportunity for startups to bridge this gap. Developing solutions that abstract cross-chain communication and create a perceived composability can enhance the user experience. Examples include user front ends performing cross-chain functionalities under the hood or wallets implementing secure multi-chain accounts via multi-party computing (MPC) for seamless cross-chain activities.

Cross-Chain DeFi Protocols

Appchains, while offering advantages in terms of throughput, can lead to fragmented liquidity, resulting in increased slippage and degraded user experiences. Startups can create cross-chain DeFi protocols that automatically split trades between chains to ensure better pricing and a smoother user experience.

Trustless Cross-Chain Messaging Solutions

The interoperability challenge between appchains and blockchain ecosystems allows startups to develop trustless cross-chain messaging protocols. These solutions can facilitate secure communication between EVM L2s, Cosmos zones, Polkadot parachains, and more, replacing existing bridges and enabling seamless value transfer.

Enabling Cross-Chain Security Sharing

Security concerns are paramount in the appchain ecosystem. Startups can work on innovative solutions that enable cross-chain security sharing. For example, validators could stake Ethereum (ETH) instead of the native appchain token to secure the appchain. Liquid staking protocols may play a crucial role in such security-sharing mechanisms.

Comparing Appchain Implementation Approaches

Various approaches exist for implementing appchains, each with unique characteristics and challenges. Here’s an overview of different methods:

Cosmos Zones

Cosmos pioneered the concept of interconnected blockchains, where each chain is known as a “Zone.” These Zones can be launched using the Cosmos Software Development Kit (SDK). The main advantage of Cosmos Zones is their modularity and customization, allowing developers to create dedicated chains for specific purposes.

Initially, each Zone is responsible for its security, which can be a barrier for smaller appchains. However, Cosmos is moving towards shared security solutions. While interconnectedness is a key feature, native inter-communication between Zones is also limited, and bridges are often needed for cross-chain operations.

Polkadot Parachains

Polkadot introduces the concept of “Parachains,” chains connected to the main Polkadot Relay Chain. Developers compete for parachain slots through auctions and are required to lock DOT tokens as collateral. Parachains enjoy shared security from the Relay Chain, providing robust protection.

However, Parachains require permission to join, and securing a slot can be competitive and costly. While functional, Cross-Consensus Messaging (XCM) for inter-parachain communication may still require improvements.

Avalanche Subnets

Avalanche allows the creation of “Subnets,” each supporting multiple chains. Subnets need their validators and share security responsibilities with the Avalanche Primary Network. This shared security enhances the robustness of appchains.

However, similar to Cosmos, Subnets require dedicated validators, which can challenge smaller appchains. Also, currently, native inter-subnet communication is limited, requiring the development of custom bridges.

Ethereum L2 Solutions

Ethereum Layer 2 (L2) solutions, while not technically appchains, provide a different approach. L2s focus on execution and transaction ordering, inheriting security from the Ethereum L1. Rollups and validiums are common L2 solutions that maintain strong security guarantees.

However, L2s face challenges in achieving atomic composability between themselves and with the L1. Building application-specific L2s on Ethereum can also be complex and lacks standardized procedures.

Each of these approaches offers unique benefits and challenges. Appchain developers should carefully consider their project’s requirements, security needs, and interoperability goals when choosing the most suitable implementation method. The blockchain industry continues to evolve, and appchains are vital in shaping its future.

Conclusion

The growing interest in appchains within the blockchain industry reflects the recognition of their potential to address specific needs more effectively than general-purpose blockchains. The analogy of appchains as “rural towns” compared to general-purpose chains as “metropolitan cities” illustrates the distinction between these specialized chains and their broader counterparts.

Businesses can harness the power of appchains in several ways. These specialized chains allow for application optimization, meeting ecosystem requirements in blockchain ecosystems like Cosmos and Polkadot and fulfilling specific application requirements such as high throughput and low fees. They also offer the opportunity to add specialized technological features like zero-knowledge proofs and improve application economics through fee control and incentives.

However, businesses must consider the complexities and potential risks of building and adopting appchains. These include the complexity of developing smart contracts, security considerations tied to application adoption and token price, the lack of atomic composability, and the risks of bridging assets for DeFi applications on appchains.

Despite these challenges, appchain startup opportunities abound, ranging from high-performance DeFi protocols and appchain gaming engines to developer tooling for appchains and AI-enabled appchains. Additionally, composability solutions, cross-chain DeFi protocols, trustless cross-chain messaging solutions, and enabling cross-chain security sharing offer avenues for innovation and growth within the appchain ecosystem.